Half a billion dollars: why Apple’s acquisition of Anobit matters

Apple reportedly acquired the Israeli flash memory design firm Anobit in a deal that cost the company $500 million dollars. Anobit management told its staff of the acquisition this week, according to Israeli newspaper Calcalist, after Apple's head of R&D visited the company's headquarters last week. Additionally, Apple is supposedly planning to build a research center in Israel as well, conveniently located in a hotbed of silicon design.

The acquisition is one of the most expensive for Apple since it acquired NeXT in 1996—15 years ago to the day, in fact—and should cement the company's strategic shift to solid-state flash storage for its products.

Apple and flash storage, sitting in a tree

Apple began standardizing on flash storage for its mobile devices with the launch of its iPod nano in 2005. Since then, the company has continually relied on pre-paying for huge stocks of NAND flash supply to keep its iPods, iPhones, and iPads in constant production.

Apple has been transitioning its laptops to rely on flash storage, too—albeit much more slowly due to the much higher costs of SSDs compared to traditional hard drives. That transition began with the launch of an SSD-equipped MacBook Air in 2008. In 2010, Apple revised and expanded the MacBook Air line and standardized on SSDs for all models. None of its MacBook Pro laptops come standard with an SSD (yet), but it has been offering flash storage as a build-to-order option for a couple years.

(SSDs remain a built-to-order only option for its desktop computers too, including the Mac Pro, iMac, and Mac mini, but desktops continually represent a smaller minority of Apple's sales quarter after quarter.)

As many Ars readers know, flash storage offers three major advantages for mobile devices: the lack of mechanical parts mean there's less to break, especially if a device gets bumped or dropped. Flash storage also typically uses less power than spinning magnetic media. And finally, its high speed means less bottlenecks for the lower-powered processors typically used in smaller devices, as well as "instant-on" capabilities.

But flash storage does have some drawbacks as well. One we already mentioned is cost—a 480GB SSD costs about $800, while a 500GB hard drive runs just over $100. Packing more storage into a smaller space also requires state of the art technology, so getting more storage space for an iPhone or MacBook Air can bump the cost differential even higher.

Additionally, flash storage reliability drops quickly with long-term use. Single-level cell designs last up to several years, but the multi-level cell designs that have increased in popularity for mobile devices due to increased storage density actually decrease the useable life span of flash chips.

Anobit to the rescue

That's where Anobit and its technology come in. Anobit has developed unique technologies that can increase the reliability of multi-level cell designs. In fact, Apple already uses an Anobit-designed DSP chip in iPhones, iPads, and MacBook Airs to extend the life of the NAND flash chips in those devices.

Anobit—like Apple's other recent silicon design acquisitions, PA Semi and Intrinsity—is a fabless design house. Its specialty is creating, testing, and verifying new designs that implement its technological innovations, and then licensing the designs to companies like Apple. By buying up Anobit, Apple can keep its flash storage improvement technologies all to itself as a competitive advantage.

Still, Apple will have to hire contract fabs or other manufacturers to build chips using the improved designs. Given the headaches that Samsung, Apple's top chip supplier, has caused Apple in the smartphone marketplace, the Anobit acquisition is perhaps another sign that Apple is prepared to drop Samsung altogether and move production of in-house designed custom silicon to someone like Taiwan Semiconductor Manufacturing Company.

Furthermore, building an R&D center in Israel will put Apple among other top tech giants that have located research centers near "Technion," or Israel's Institute of Technology. That will also put Apple's silicon design team in close proximity to partners like Intel and Qualcomm.

The basic hardware of the iPhone isn't hard to replicate—an ARM-based processor, NAND flash, Qualcomm baseband, a touch screen, and a handful of largely off-the-shelf parts are fairly easy to come by these days. But highly optimized designs for efficient, low-power operation and long-term reliability don't come cheap. With Apple able to leverage its own in-house expertise and contracting out production in the kind of volume that Apple sees with the iPhone, iPad, and MacBook Air, it can afford to integrate those optimizations into its products while still maintaining market-competitive prices and market-leading profits.

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155 Reader Comments

"The basic hardware of the iPhone isn't hard to replicate—an ARM-based processor, NAND flash, Qualcomm baseband, a touch screen, and a handful of largely off-the-shelf parts are fairly easy to come by these days. "

I really like Apple's acquisitions. They're really smart when it comes to buying out companies that are at the top of their game, unlike Google. Google will buy anything.

Huh? Basically every company Google has purchased for over $100M has been in advertising or search, the three big exceptions are Postini, youtube, and Motorola Mobility. Postini has been a sure win, youtube is probably a long term win (took a long time and a lot of investment before it started being revenue positive), and Motorola was a defensive move to keep from being locked out of the long term future of computing.

Really interesting move and it kind of makes sense. Apple has always been a design company, there has been trade offs in hardware in order to suit the design of the product. This takes it to another level, Apple will be able to hold sway over even the basic parts to suit design better, when the goal is low heat, make sure the chip is designed to that.

Alternatively, Apple could be getting in on the bottom floor of what they see as the evolution of computing. If they can make the best memory designs, everyone will buy them and they'll make squillions. Apple has a lot of engineers, no reason why they couldn't dominate hardware all the way along.

Really interesting move and it kind of makes sense. Apple has always been a design company, there has been trade offs in hardware in order to suit the design of the product. This takes it to another level, Apple will be able to hold sway over even the basic parts to suit design better, when the goal is low heat, make sure the chip is designed to that.

Alternatively, Apple could be getting in on the bottom floor of what they see as the evolution of computing. If they can make the best memory designs, everyone will buy them and they'll make squillions. Apple has a lot of engineers, no reason why they couldn't dominate hardware all the way along.

in a way they are already dominating the hardware.

Look at the smartphone design before iPhone.Look at the tablet design before iPad.Look at the Intel ultrabook reference design after MacBook Air.

Additionally, flash storage reliability drops quickly with long-term use. Single-level cell designs last up to several years, but the multi-level cell designs that have increased in popularity for mobile devices due to increased storage density actually decrease the useable life space of flash chips.

I don't see why this is an issue if the device you're talking about has a short-term life span ... for most people, that'll be the length of a standard cell phone contract, or two (2) years.

It's only an issue with regards to sensitive and persistent data, like that used by law enforcement or corporate IT. For most of us, we'll end up (whether we like it or not) being pushed towards the cloud for persistent state storage.

I really like Apple's acquisitions. They're really smart when it comes to buying out companies that are at the top of their game, unlike Google. Google will buy anything.

Huh? Basically every company Google has purchased for over $100M has been in advertising or search, the three big exceptions are Postini, youtube, and Motorola Mobility. Postini has been a sure win, youtube is probably a long term win (took a long time and a lot of investment before it started being revenue positive), and Motorola was a defensive move to keep from being locked out of the long term future of computing.

I’m also not sure why you limit purchases to $100 million though, seems kind of arbitrary. When taken in their entirety Google’s acquisitions do seem a little scattershot. They come across as a company with a lot of money, a lot of enthusiasm, a lot of interests and a lot of ideas for inserting ads, but also unfocused and lacking discipline. In a decade they have acquired over 100 properties for $21 billion dollars — that amount only account for a third of the acquisitions. Though obviously the remaining two-thirds probably don’t add up to a billion. Comparatively Apple has spent about a tenth that amount ($2.1 billion) over two decades accounting for just under half their acquisitions.

What really surprised me was how so many of the properties we associate with Google weren’t created at Google, it seems apart from the actual Google Search algorithm they haven’t created much on their own. I’m actually quite impressed the integration between their product families considering the disparate nature of their origins.

I would say the major difference between the two is Google is acquiring products, rebranding them as Google and monetizing the property. Apple on the other hand is more likely to acquire a company for its people and IP than specific products. There are of course exceptions to the rule, Siri, iMovie, GaragaBand, iTunes, Final Cut, iDVD were all acquisitions of existing products that led to Apple branded versions.

I wonder if this is smart. I see Apple as specializing in fantastic industrial design on the hardware side and exceptional usability design and attention to detail on the software side.Will PA Semi and Anobit really feed into that? Maybe, but probably only short term. Innovations in flash memory are important *right*now*, but it's more likely that the process leadership of a company like Intel is going to win the day on that one. But now they've made a 1/2 billion dollar investment that says they will tend to use their own stuff, with whoever will fab it for them, rather than looking at a highly competitive external industry that amortizes it's costs across a much larger total volume and cost base. (Apple's big, but they're not the whole world)Same for PA Semi. Are thet going to lead to a culture of "Not Invented Here" where Apple will *tend* to ignore the innovation of other ARM design/build shops? Companies that again will be able to better spread their costs across more customers?If Apples internal chip design facilities end up being relatively expensive and behind the industry curve of innovation, will they have the courage to cut their losses, or will they keep them going, and fall behind, rather than push forward.I think Apple is better off with off-the-shelf, and relying on their design and supply chain muscle than getting into areas where they are buying, rather than growing expertise.

"The basic hardware of the iPhone isn't hard to replicate—an ARM-based processor, NAND flash, Qualcomm baseband, a touch screen, and a handful of largely off-the-shelf parts are fairly easy to come by these days. "

Cue the anti-IP crowd. It's just research, right? How can it be worth 500 million dollars?

Please don't tell me you are that dumb of a troll.

Although it does bring up the obvious question of what sorts of new patent trolling will Apple be up to in the future? Will they be doing the same thing for the SSD market that they are doing for the phone and tablet markets now?

The best thing about this deal is Anobit's location, Israel. Israel is extremely friendly to especially famous American companies. It give huuuuge tax cuts and various benefits. It even let Intel build it's factory on confiscated land.

Really interesting move and it kind of makes sense. Apple has always been a design company, there has been trade offs in hardware in order to suit the design of the product. This takes it to another level, Apple will be able to hold sway over even the basic parts to suit design better, when the goal is low heat, make sure the chip is designed to that.

Alternatively, Apple could be getting in on the bottom floor of what they see as the evolution of computing. If they can make the best memory designs, everyone will buy them and they'll make squillions. Apple has a lot of engineers, no reason why they couldn't dominate hardware all the way along.

in a way they are already dominating the hardware.

Look at the smartphone design before iPhone.Look at the tablet design before iPad.

Yes. Archos had something that looked very much like an iPad.

"Retroactive copycats" are easy to find if you bother to take the blinders off long enough to look.

I wonder if this is smart. I see Apple as specializing in fantastic industrial design on the hardware side and exceptional usability design and attention to detail on the software side.

I think you’re missing out on one of their critical advantages which is supply chain management and a small product line. While Android OEMs have to out-innovate each other every 3-4 months Apple is still producing a 3 year old phone that is outselling most Android devices. No line retools, no costly testing, certification, prototype development, packaging, replacement parts, the cost to produce a 3GS must be ridiculously low at this point.

Dave Cattran wrote:

I think Apple is better off with off-the-shelf, and relying on their design and supply chain muscle than getting into areas where they are buying, rather than growing expertise.

I disagree, the PA Semi and Intrinsity acquisitions have given Apple a sizable advantage in mobile CPU/GPU design. They are able to ship an under-clocked CPU that holds its own against off the shelf CPUs with 50% higher clock speed (800Mhz vs 1.2Ghz). While the graphics performance the A4/A5 is several orders of magnitude ahead of anything Android is producing yet the iPhone 4 gets better battery life. No the custom chipset is critical for Apple, they understand how their OS works best and how to best tweak the CPU/GPU to suit their needs.

"The basic hardware of the iPhone isn't hard to replicate—an ARM-based processor, NAND flash, Qualcomm baseband, a touch screen, and a handful of largely off-the-shelf parts are fairly easy to come by these days. "

The world seen through engineers eyes

...or a normal consumer's eyes.

Most people simply aren't Apple fanboys. It's time to get over it.

"Normal consumers" don't know from NAND or ARM or who the fuck Qualcomm is.

Although it does bring up the obvious question of what sorts of new patent trolling will Apple be up to in the future? Will they be doing the same thing for the SSD market that they are doing for the phone and tablet markets now?

If you can think of another reason for Apple to buy an IP company for $500M, name it... Intel bought into RAMBUS (but had the good sense not to buy the company) for exactly the same purposes, IIRC, so the purchase of an IP is no guarantee of its future success, even when you have the kind of market-setting hardware clout Intel has traditionally had within x86. Despite its investments of tens of billions of dollars, both into RAMBUS directly (I believe that was about $1B) and then into virtually every major ram manufacturer in the world to "aid" them in the their "tool up for Rdram"---which never happened, although the dram manufacturers got to keep all of the cash Intel laid on them--so it was a good move for them. Of course, the move didn't work out well at all for Intel, fortunately (rdram sucked/s).

It's obvious that Apple is searching for some IP that it feels it can safely claim is original and safely patent so that it can have hopes of patents that aren't silly or obviously prior art. But let's hope that Apple has somewhat more doable plans than those...although I do get the distinct feeling that somebody at Apple has been talking too much to somebody at Intel in recent days...

Although it does bring up the obvious question of what sorts of new patent trolling will Apple be up to in the future? Will they be doing the same thing for the SSD market that they are doing for the phone and tablet markets now?

in reference to this purchase it wouldn't be trolling, they are actually making something.trolling is to own a patent with no intentions of production.

I wonder if this is smart. I see Apple as specializing in fantastic industrial design on the hardware side and exceptional usability design and attention to detail on the software side.Will PA Semi and Anobit really feed into that? Maybe, but probably only short term. Innovations in flash memory are important *right*now*, but it's more likely that the process leadership of a company like Intel is going to win the day on that one. But now they've made a 1/2 billion dollar investment that says they will tend to use their own stuff, with whoever will fab it for them, rather than looking at a highly competitive external industry that amortizes it's costs across a much larger total volume and cost base. (Apple's big, but they're not the whole world)Same for PA Semi. Are thet going to lead to a culture of "Not Invented Here" where Apple will *tend* to ignore the innovation of other ARM design/build shops? Companies that again will be able to better spread their costs across more customers?If Apples internal chip design facilities end up being relatively expensive and behind the industry curve of innovation, will they have the courage to cut their losses, or will they keep them going, and fall behind, rather than push forward.I think Apple is better off with off-the-shelf, and relying on their design and supply chain muscle than getting into areas where they are buying, rather than growing expertise.

I disagree. Apple is now selling enough stuff that buying Flash costs them several billion every year. They are the biggest buyer of Flash, and are getting bigger. This can save them hundreds of millions a year in Flash. And the increased reliably isn't something to gloss over.

Just as with the purchase of two chip design companies, Apple can exploit this to gain performance benefits their competitors have problems matching. Cost benefits as well.

It's not likely that Apple, a very conservative company financially, didn't think this out very carefully. You may not agree with them, but your position isn't based from knowledge of their operations, just your own feelings.

"The basic hardware of the iPhone isn't hard to replicate—an ARM-based processor, NAND flash, Qualcomm baseband, a touch screen, and a handful of largely off-the-shelf parts are fairly easy to come by these days. "

The world seen through engineers eyes

...or a normal consumer's eyes.

Most people simply aren't Apple fanboys. It's time to get over it.

I suppose the hundreds of millions of people who buy and use their products are all fanboys?

That must go for people who purchase Microsoft products, and use products developed by Google as well, as they all express their superiority.

Additionally, flash storage reliability drops quickly with long-term use. Single-level cell designs last up to several years, but the multi-level cell designs that have increased in popularity for mobile devices due to increased storage density actually decrease the useable life space of flash chips.

I think Apple is better off with off-the-shelf, and relying on their design and supply chain muscle than getting into areas where they are buying, rather than growing expertise.

I think you are completely missing the elements that Apple has labored over for the past decade which precisely contradict that sentence. Apple's best-selling items stand above the competitors because they eschewed off-the-shelf parts. No one else can match both the price and the quality of either the iPad or the MacBook Air because they lack the expertise necessary to implement compelling designs that stand out.

The days of sheetmetal PCs with plastic knockouts on the front are coming to an end.

Just because they have PA Semi and now Anobit doesn't mean they're going to adopt a "Not Invented Here" attitude for these technologies. They could - but they don't have to and I am guessing they won't.

PA Semi was a huge win, they got it for next to nothing and turned the tech into a serious competitive advantage within a year or two. The PA Semi guys are the best in the business, and they now all work for Apple. Company acquisitions do not come more successful than that. PA Semi could be an example in business 101 on how to do acquisitions.

With Anobit, I am not so sure - it's way more expensive and I imagine that's mainly because there's more demand for their technology than there was for PA Semi's. Not because they have something much better. So Apple had to bite the bullet and kind of overpay for that... Whether or not it will pay off remains to be seen. I can only imagine Apple will create their own, better, Flash controllers (and memory?) but I am also doubtful that they can work that into a huge advantage as there are many tech companies all over the world are working on solutions for the same problem right now.

I think there is a good chance this will be $500M out the window. Not saying it is, just saying that this is a much more risky acquisition than PA Semi. Then again PA Semi was pretty much a home run.

Just because they have PA Semi and now Anobit doesn't mean they're going to adopt a "Not Invented Here" attitude for these technologies. They could - but they don't have to and I am guessing they won't.

PA Semi was a huge win, they got it for next to nothing and turned the tech into a serious competitive advantage within a year or two. The PA Semi guys are the best in the business, and they now all work for Apple. Company acquisitions do not come more successful than that. PA Semi could be an example in business 101 on how to do acquisitions.

With Anobit, I am not so sure - it's way more expensive and I imagine that's mainly because there's more demand for their technology than there was for PA Semi's. Not because they have something much better. So Apple had to bite the bullet and kind of overpay for that... Whether or not it will pay off remains to be seen. I can only imagine Apple will create their own, better, Flash controllers (and memory?) but I am also doubtful that they can work that into a huge advantage as there are many tech companies all over the world are working on solutions for the same problem right now.

I think there is a good chance this will be $500M out the window. Not saying it is, just saying that this is a much more risky acquisition than PA Semi. Then again PA Semi was pretty much a home run.

Apple had that concept in the past. But all tech companies want to own the tech they rely upon, which is why they all make acquisitions. Nothing wrong with that to put your destiny in your own hands. And Apple we must remember had been screwed several times before by partners. First Motorola, then Freescale, then, even IBM came up short.

Looking at the tech this company has, it looks like a very good bet for Apple.

Let's understand that this purchase is about 5 days of free cash flow for Apple. Not much of a risk.

I think Apple is better off with off-the-shelf, and relying on their design and supply chain muscle than getting into areas where they are buying, rather than growing expertise.

The days of sheetmetal PCs with plastic knockouts on the front are coming to an end.

Your last sentence made me laugh. The cheap tower isn't going away anytime soon, not everyone wants or can afford a mac. Laptops are a bigger threat to the tower, but even they won't fully displace them from the market. The big numbers are in enterprise and i really don't see many companies ditching towers for a pure laptop or tablet working enviroment.

Really interesting move and it kind of makes sense. Apple has always been a design company, there has been trade offs in hardware in order to suit the design of the product. This takes it to another level, Apple will be able to hold sway over even the basic parts to suit design better, when the goal is low heat, make sure the chip is designed to that.

Alternatively, Apple could be getting in on the bottom floor of what they see as the evolution of computing. If they can make the best memory designs, everyone will buy them and they'll make squillions. Apple has a lot of engineers, no reason why they couldn't dominate hardware all the way along.

in a way they are already dominating the hardware.

Look at the smartphone design before iPhone.Look at the tablet design before iPad.

Yes. Archos had something that looked very much like an iPad.

"Retroactive copycats" are easy to find if you bother to take the blinders off long enough to look.

If Archo already had one that looks and function the same as the iPad, then why were there people who say that Apple was lying about iPad's battery life when they first announced it.

I'd give it five more years and then only the cheapest clone makers and niche enthusiast vendors will offer anything resembling today's tower boxes. Dell, HP, Acer, and all the usual suspects will emphasize integrated iMac-style machines with limited expandability. Why would a corporate IT departments deploying thousands of systems bother with anything more complicated?

We don't need a room to house a general-purpose 'computer' anymore. Soon enough we won't need a suitcase either.

Additionally, flash storage reliability drops quickly with long-term use. Single-level cell designs last up to several years, but the multi-level cell designs that have increased in popularity for mobile devices due to increased storage density actually decrease the useable life space of flash chips.

I don't see why this is an issue if the device you're talking about has a short-term life span ... for most people, that'll be the length of a standard cell phone contract, or two (2) years.

It's only an issue with regards to sensitive and persistent data, like that used by law enforcement or corporate IT. For most of us, we'll end up (whether we like it or not) being pushed towards the cloud for persistent state storage.

WTF do people STILL insist, after YEARS AND YEARS of evidence, that Apple is in the business of selling cheap crap that dies soon? Yes, plenty of people replace their iPhones after a two year contract. At which point what happens? They give them to their parents, to their kids, to people around them, or they sell them on eBay. When people say that Apple products have tremendous retail value, yo do know they're not just making shit up, right?

Apple like having a reputation for hardware that lasts a long time. And, you'll notice that in spite of a vast amount of web idiocy, they have never done anything to hurt that reputation. All that stupidity about the short life of built in batteries --- how much did it matter in the real world. Then the stream of of predictions about how VM swapping on the MacBook Air would kill the SSD --- how's that prediction panning out?

Having said that, and while I am sure that Apple care about giving all their products superior longevity, I suspect a higher priority is faster flash that still doesn't use too much write power. The flash on existing iOS devices writes at about 20MB/s, and is a noticeable bottleneck when doing wired syncing. They could double its speed before they even had to worry about the USB2 bottleneck.(I expect the existing flash also has read performance problems, contributing to the machines feeling sluggish when they need to page in a number of successive code pages. Certainly while iPads and iPhones are usually smooth, they are not ALWAYS smooth; and as far as I can tell that is usually related to hitting flash, not to either the CPU or GPU being overloaded.)

This is not a completely trivial problem. The issue is not that we don't know how to make fast flash; it's that we want to make it fast while not using too much power --- we can't afford to use laptop levels of power on a phone.

I wonder if this is smart. I see Apple as specializing in fantastic industrial design on the hardware side and exceptional usability design and attention to detail on the software side.Will PA Semi and Anobit really feed into that? Maybe, but probably only short term. Innovations in flash memory are important *right*now*, but it's more likely that the process leadership of a company like Intel is going to win the day on that one. But now they've made a 1/2 billion dollar investment that says they will tend to use their own stuff, with whoever will fab it for them, rather than looking at a highly competitive external industry that amortizes it's costs across a much larger total volume and cost base. (Apple's big, but they're not the whole world)Same for PA Semi. Are thet going to lead to a culture of "Not Invented Here" where Apple will *tend* to ignore the innovation of other ARM design/build shops? Companies that again will be able to better spread their costs across more customers?If Apples internal chip design facilities end up being relatively expensive and behind the industry curve of innovation, will they have the courage to cut their losses, or will they keep them going, and fall behind, rather than push forward.I think Apple is better off with off-the-shelf, and relying on their design and supply chain muscle than getting into areas where they are buying, rather than growing expertise.

Go read your Clayton Christensen.A company like Intel wins when the value is in the individual components; and a computer manufacturer is simply putting components together. That WAS the PC industry --- it's not the phone industry, and it's not even the ultrabook industry. For the foreseeable future, the value is not in the individual components, it's in how they are tied together --- and that's the value that companies like PA Semi and Anobit bring to Apple.

Even assuming, for example, you are correct, that some other company creates a faster flash controller than Anobit. That may not be relevant. Control of Anobit means that Apple can put their flash controller on the same die as the CPU (if that makes sense) reducing latency, size, and costs. It also means that if the OS designers have a good idea for how to improve the file system (eg make each block of flash carry a HW checksum, allowing for an end-to-end fully checksum'd file system), it's fairly easy for Apple to get that idea into HW.

We've been through iterations of this many times. Presumably at some point innovation in phones and light laptops will slow down enough that a "mere" manufacturer, rather than a total system designer, will be feasible, and the value will once again migrate to those producing the very best of each component. But we are not there right now, and it is foolish to apply lessons learned in the very different PC era to what is going on today.